Suppose that Canada imposes restrictions on the importation of steel into Canada.According to the open-economy macroeconomic model,which of the following would be the most likely result?
A)This policy would lower the real exchange rate and increase net exports.
B)This policy would lower the real exchange rate and have no effect on net exports.
C)This policy would raise the real exchange rate and decrease net exports.
D)This policy would raise the real exchange rate and have no effect on net exports.

Question

Quizplus · Accepted Answer

Import restrictions would lead to a higher real exchange rate as demand for domestic currency increases, but net exports remain unchanged because the decrease in imports is offset by a decrease in exports due to the stronger currency.

Suppose That Canada Imposes Restrictions on the Importation of Steel